Page 1 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Intellectual Property and IP Infringement – Methodology and Results of a Survey focusing on the German “Mittelstand“ (SME) World Intellectual Property Organization Geneva, September 17th/18th 2009 Florian Köhler Berlin Institute of Technology Faculty of Economics and Management Chair for Innovation Economics

Page 2 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th  Background of the study and key questions  Methodology  Some results  Lessons learned and implications for todays workshop Agenda

Page 3 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th growing importance of intangible assets and the protection of intellectual property. at the same time growing (perceived) increasing threat of product piracy, counterfeiting, patent infringement… specific situation of SME (cost factors, low IP awareness, difficult enforcement, situation etc.) study commissioned by Federal Ministry of Economics and Technology, division “Patent Policy and Promotion of Inventions” timing: May to December 2008 Background and Key Questions

Page 4 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Background and Key Questions Key Questions How has the importance of intellectual property changed over the last years? How high ist the estimated impact on firm and economy level of IP infringement (product piracy/counterfeiting)? What are the implications for economic/innovation policy, especially with respect to Small and Medium Enterprises in Germany?

Page 5 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Literature Review Analysis of existing related literature Consideration of both scientific papers, “grey” and “white” literature Secondary Analysis Analysis of existing data (Community Innovation Survey, National Accounts etc.) Analysis of custom seizure data for estimations of counterfeiting) Primary Analysis Written survey among both small and larger companies as well as patent attorneys Semi-structured interviews with experts and stakeholders etc Methodology

Page 6 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Firm Sample: ­around 3000 companies with at least 10 patents filings in ­census survey among largest German companies plus random of sample firms with own research and development activities ­additionally: participants in relevant conferences on counterfeiting sampling bias towards patent-active firms (representativity limited!) Attorney Sample -500 patent attorneys (intention was to have a „second opinion“ from outside the company itself; random sample drawn from German patent attorney database) plus: semi-structured interviews with experts, trade associations, SME general managers etc. Methodology – The Sample

Page 7 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Methodology – The Sample around one third are SME (according to EU definition size criterion), around 50% with less than 500 employees Sample Description by Size Company Size (headcount) No of companies up to 49 employees56 50 to 249 employees to 499 employees and more employees158 Total295 Consideration of both large and smaller companies makes comparative analysis possible Focus on research active firms and IP users Oversampling of research active companies with high usage intensity of patents and trademarks 92,39% 88,19% 92,25% 53,85% 20,10% 19,11% 0%10%20%30%40%50%60%70%80%90%100% R&D activity Use of patents Use of trademarks Sample CIS 4

Page 8 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Method of data collection: Paper & Pencil plus online version 2 reminder letters plus reminders calls Incentive: Summary of main results (for firm benchmark) Mostly closed questions, with ordinal answer scales Questionnaire structured in 3 modules according to research questions: Module A: Importance and Value of Intellectual Property, e.g. Importance of different IP protection methods (current situation and retrospective/prospective statement) Motives to patent (protection, blocking, licensing etc) Technology transfer (frequency and motivation for licensing) Methodology – The Questionnaire

Page 9 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Module B: IP Infringement/Product Piracy/Counterfeiting Incidence and frequency of counterfeiting cases Geographical information on counterfeiting cases Enforcement Issues Monetary and Non-Monetary Impact of Counterfeiting Module C: Support Programmes in the field of IP Awareness and use of IP support programmes Barriers for usage and perception of support programmes plus: standard company information (industry, employees, sales, cooperation intensity, function of respondent) Methodology – The Questionnaire

Page 10 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – The importance of formal IP protection Importance and Change in Importance of formal IP protection over firm size 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 Importance Trademark -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 1 Change in Importance PatentsCopyright Industrial Design Up to 49 employees 50 to 249 employees 250 to 499 employees 500 and more employees Utility Model TrademarkPatentsCopyright Industrial Design Utility Model Patents and Trademarks have high relative importance both in SME and in larger firms compared to other IP rights. Increase in the importance can be observed to a greater extent among larger size classes. Perception of utility models and copyright more equally distributed).

Page 11 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – The importance of informal IP protection For SME several informal/strategic ways of protecting IP have become more important. Lead Time Advantage and Staff Relationship were given growing importance. Larger firms also use implementation of technical solutions to deter counterfeiting / to protect their products from imitation. Change in Importance of Informal/Strategic protection methods over size classes -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 1 Lead Time Advantage Confidentiality with Suppliers Use of trade secrets Exclusive Customer Relationships Implementation of technical solutions Employee loyalty/staff retention Confidentialy with staff Defensive Publication Strategy Change in Importance Implementation of management tools Up to 49 employees 50 to 249 employees 250 to 499 employees 500 and more employees

Page 12 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – Strategic use of patents Traditional protection motive plays most important role, but not to the same extent for the smallest companies. Strategic relevance of patents for SMEs in licensing motive and access to financing (patents as indicator for credit worthiness or collateral) Strategic Use of Patents over size classes 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5 Protection Offensive Blocking Differentiation against competitors Defensive Blocking Exchange Motive (Cross-Licensing) Generating Licensing Income Financing Motive Importance Up to 49 employees 50 to 249 employees 250 to 499 employees 500 and more employees

Page 13 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – Frequency of Product Piracy Around 65% of the companies had experience with counterfeiting/product piracy Frequency increases with company size (higher activity abroad, more formal IP, more valuable brands) But more than 50% of SMEs with more than 50 employees also affected. Frequency of Patent or Trademark Infringement over size classes 0% 20% 40% 60% 80% 100% Patents Trade- marks Patents up to 49 employees 50 to 249 employees 250 to 499 employees employees Total Often or very oftenSeldom to SometimesNever Trade- marks

Page 14 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – The impact of IP infringement Loss of revenue as a result of product piracy Additional expenses as a result of product piracy Loss of revenue and additional expenditure as consequence of product piracy Loss of revenue in the majority of cases under 5% of yearly turnover; but also 12.1% with losses of more than 10%. Monetary impact mostly around 1-2% of yearly turnover. Total monetary impact for companies is estimated to 6.2% of yearly turnover.

Page 15 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – The impact of IP infringement Stronger use of informal protection methods Stronger use of formal protection methods Stronger Efforts in IP maintenance and enforcement Breakup/Change in relations with customers Lower investment in production plants in critical markets Lower sales activities in critical markets Usage of informal protection methods is increasing in all size classes, large companies also ramp up formal protection methods like patents SME are at disadvantage since potential for higher IP maintenance and enforcment is not feasible for them. Impact of product piracy on management decisions over firm size Up to 49 employees 50 to 249 employees 250 to 499 employees 500 and more employees

Page 16 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Some results – Semi-structured expert interviews In general: Low IP awareness Most common complaint: time and costs of patenting / examination process, community patent subject With respect to IP support programmes: and information gap on existing IP support among many companies Lack of coordination between various support offers, e.g. those focused on research support and those focusing on IP topics Focus should shift from “patent promotion” to the advancement of IP management skills and IP exploitation IP education is the most important component (also in universities and secondary education)

Page 17 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Lessons learned – Methodological Issues Combination of large scale survey and in-depth interviews very fruitful. Never underestimate the usefulness of pre-testing, especially among SMEs with possibly lower knowledge about IP topics! Include definitions of the phenomena (R&D expenditures etc.) under investigation. Refusal/unit non-response seem to be higher among entrepreneurs and SMEs than managers of larger companies (lack of time and interest): Keep it short and focused! The extra effort of „paper & pencil“ compared to „online only“ paid back with higher return rate. Try to ease concerns on releasing confidential information and design questionnaire accordingly to avoid item non-response.(categories for R&D expenditures instead of “naked figures”).

Page 18 Berlin Institute of Technology Expert Group Meeting on IP and SME Geneva, Sep 17th/18th Discussion Thanks for you attention.